Apparel may see fewer orders as brands stuck with excess inventory

The global economic recovery from the Covid pandemic has been repeatedly hit by various events, which shows how interconnected economies around the world are. We have not yet officially come out of the pandemic. In fact, we can see the fourth wave of infections is gradually taking shape.

The readymade garment and textile sectors have not fully recovered from the onslaughts caused by the pandemic. Rising freight costs globally, the strengthening of the local currency against the US dollar, and a looming recession coupled with changes in consumers' spending habits have all contributed to this situation.

Last year, brands placed orders to help offset any supply chain stoppages and disruptions from any new wave of Covid. Their decision seemed to have paid off as we saw China going into a lockdown, and yet shelves in their shops were full of merchandise.

However, the conflict in Ukraine has brought forward many issues, most importantly the looming recession likely to take effect in major markets i.e. the USA and Europe. Inflation caused by soaring energy and food prices along with a sharp rise in housing costs and mortgages has already begun to affect consumer spending patterns as they are left with dwindling disposable income.

The strengthening of the dollar has also taken a toll on brands' profits in their home countries. For example, H&M in Sweden and Inditex in Spain have faced such fates. Also, major brands are stuck with excess inventory which will slow down their future orders.

In Bangladesh, the RMG and textiles sectors need to be careful in the coming days. First of all, that major brands are stuck with excess orders is worrying. This will mean fewer orders at lower prices as everyone will try to fulfil capacity in their factories to make sure bank repayments and workers' salaries are paid in time.

If the source tax hike proposed in the national budget for FY23 is implemented in these hard times, this will have a long-term effect on this industry. The present leadership of the BGMEA has already written to the Ministry of Finance regarding this.

Also, buyers will want a longer settlement period for their orders as there might be a further slowdown. This will mean there will be a strain on EDF facilities. Furthermore, a hike in energy prices along with rising costs of doing business will create new challenges for all manufacturers.

In a welcome change, however, the Bangladesh Bank is slowly devaluing taka against the greenback. Unfortunately, in our competing countries such as Turkiye, Pakistan, and India, the devaluation has happened more aggressively, making their products more competitive.

The incumbent government has always lent full support to the major forex earning sectors in the country. We have grown leaps and bounds because of this symbiotic relationship between entrepreneurs, government policies, and banking facilities. 

I sincerely hope the government will take the coming global scenario and create the groundwork so the appeal industry in Bangladesh can come out of the oncoming storm on a stronger footing ready to face the challenges after the country's graduation from the LDC status and become the global leader in this sector.

Shams Mahmud is former president of DCCI

Shams Mahmud spoke to TBS Senior Staff Correspondent Jasim Uddin over the phone